Question

The company spends $8,800 per quarter in wages for each Level 1 employee.

Productivity is currently 202 units per worker, requiring 505 Level 1 employees to
meet the production goal of 102,000 units. By spending $20,000 on training, it is
projected that productivity can be increased 1%.
QUESTION 4
Use the following formula to calculate the return on investment from the training expense:
ROI = 100% x (Savings - Expense) / Expense
Answer

Answer 1

Method 1 is the most cost-effective. If labor costs double, Method 1 is still the best option.

To determine the best production method, we need to compare the total cost of each method. Method 1: 50 units of labor and 10 units of capital, Method 2: 20 units of labor and 40 units of capital, Method 3: 10 units of labor and 70 units of capital. The cost of labor is given as $100/unit and the cost of capital is $400/unit.

Method 1 cost = (50 x $100) + (10 x $400) = $5000 + $4000 = $9000. Method 2 cost = (20 x $100) + (40 x $400) = $2000 + $16000 = $18000. Method 3 cost = (10 x $100) + (70 x $400) = $1000 + $28000 = $29000.

Hence, the best production method is Method 1. If the cost of labor rises to $200/unit, the costs for each method will double. Therefore, Method 1 will still be the best production method as it will have the lowest cost at $18000.